Avoiding Obamacare's 'Death Spiral'

If the administration misses its deadline, the consequences could be severe.

Jeff Zients, the former White House budget director asked to oversee repairs to the Obamacare website, faces a late-November deadline with real consequences.(Chet Susslin)

If the Obama administration can meet its new deadline for a functional Obamacare website, it might be able to avoid serious policy consequences from the rocky initial rollout and avoid what is known in the insurance industry as a "death spiral."

President Obama's refrain lately is that the Affordable Care Act is "more than a website." And that's true. But the problems plaguing HealthCare.gov are more than website problems. They're enrollment problems—problems that prevent people from accessing the rest of the services brought about by the law.

Jeff Zients, the former White House budget director asked to oversee repairs to the site, said Friday that the administration now believes HealthCare.gov can be fully functional by the end of November, and that it will make incremental progress until then.

But if the site's woes last much beyond Thanksgiving, health care experts say, there will be serious implications for the law's overall success, not just the politics that surround it.

"I think this is an exchange-enrollment problem in a big way … it's in substantively bad shape," said Douglas Holtz-Eakin, a conservative economist and former Congressional Budget Office director who now leads the American Action Forum.

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Even before the new deadline was announced, health care experts saw late November as a turning point for the law's insurance exchanges, the new marketplaces, accessed primarily through HealthCare.gov, where people who don't get coverage through an employer can shop for private insurance plans.

The website is the primary way for people to enroll in coverage through the law. And if too few people sign up, those who do enroll could see higher premiums and dwindling choices.

The administration is hoping to sign up roughly 7 million people by the end of March, including about 2.7 million young adults. Getting young people into the system is crucial to offsetting the cost of guaranteeing coverage to people with pre-existing conditions.

If they miss those goals because of a foundering enrollment process, the exchanges might not work as intended.

The White House has urged people thwarted by HealthCare.gov to use call centers or paper applications. But the people most likely to persist through the enrollment obstacle course are the sickest, oldest consumers—not the young people who have to be persuaded even to check out prices on the website.

That means the risk pools for the exchanges could be worse than expected, saddling insurers with extra costs and driving premiums up next year And that, in turn, could make enrollment even less attractive to healthy people. It's known in the insurance industry as a "death spiral."

"There's some bad dynamics if they don't get more people," Holtz-Eakin said.

He said the administration's political and substantive problems could overlap, even if the web site gets better. The bad initial experience with HealthCare.gov may simply ruin its reputation in the eyes of young, web-savvy consumers, Holtz-Eakin said.

"Once the brand is bad, what do you do? They have built the first Hyundai for the website," he said.

Other health care experts are more charitable. They say they didn't expect many people to show up on day one and buy a plan, so the administration legitimately has some time to figure things out.

"A lot of folks are window shopping right now," said Dan Schuyler, director of exchange technology at the consulting firm Leavitt Partners.

He expects people to focus more seriously on buying insurance over the next few weeks, so if the site is working by then, the rocky start might not make much of a difference.

Talk of delaying the law's individual mandate or extending the window to buy insurance is premature, he said. The White House will have to see how enrollment numbers are looking by January, then make a decision about whether the process has caught up to expectations.

"Then the administration may consider extending open enrollment, but right now I think it's way too early to make that call," Schuyler said.